The Broadbent Blog

Inequality’s a problem for Canada, too

I don’t know whether it’s smugness or indifference, but we Canadians can be a self-deluding lot. Growing inequality, portrayed recently in The Economist as a global scourge, when viewed from Canada, seems to be a problem only for others.

After all, it was other countries’ banks that crashed in 2008. It’s in southern Europe that tens of thousands are taking to the streets. And it was in France and the United States that recent elections were fought over the fact that those who created the mess, the top 1 per cent, are still getting big bonuses and low tax rates.

Well, guess what? Canada is not doing better. From 1982 until 2004, almost all growth in family income went to the top 20 per cent, with much of that going to the top 1 per cent, while the bottom 60 per cent saw no growth at all. The increase in inequality in Canada since the mid-1990s has been the fourth highest in the Organization for Economic Co-operation and Development.

But does this matter? Yes, the evidence is in, and the conclusion is clear: Inequality does matter. In terms of social outcomes, more equal societies do better for everyone, not just for the poor, in almost every respect: health outcomes, life expectancy, level of trust in society, equality of opportunity and upward social mobility. A recent study showed that if Americans want to experience the American Dream of upward mobility, they should pack up and move to Sweden. They would have to leave the most unequal democracy and move to the most equal.

Contrary to the mythology propagated by so many, the actual degree of inequality in advanced democracies has little to do with the so-called forces of globalization or shifts related to technological change. It’s largely the result of government action or inaction. Globalization affects all countries. But, from the mid-1970s, the share of income of the top 1 per cent in Canada, the U.S. and Britain rose rapidly, while there was little change in France, Germany, Sweden and the Netherlands. As recently highlighted by the World Bank, Brazil and other Latin American countries have become significantly more equal over the past decade.

Once again, the evidence is clear: Whether countries become more or less equal depends largely on government policies. Government can reduce or exacerbate the market trends producing inequality.

We should also lay to rest another myth: Contrary to the “trickle down” economics so dear to Mitt Romney, if we compare the stability and growth of rich country economies, there’s no evidence that preserving greater equality comes at the price of economic success.

Having lost his election, Mr. Romney could comfortably move to Canada. Because of changes in tax policy that started in the 1990s, the top 1 per cent of taxpayers now have an effective overall tax rate that’s not only lower than that of the middle class but even lower than that of the bottom 10 per cent. Between 1990 and 2005, their tax rate dropped by four percentage points, while that of the bottom 10 per cent actually increased.

Canada’s equalizing social programs remain underfunded, and the reason is clear. The tax share of our GDP has dropped to 31 per cent, three points below the OECD average. That’s billions of dollars in lost revenue.

In the Nov. 6 U.S. election, a solid majority in California – home of America’s original anti-tax movement – voted to increase taxes to save what was once the world’s best public education system. Recent opinion surveys suggest Americans in general have begun to move in this direction.

Canadians have certainly indicated a desire for change. In a comprehensive poll in April done by Environics for the Broadbent Institute, a majority of Canadians said severe inequality is harmful to our democracy, and 64 per cent said they were willing to pay slightly more taxes to do something about it. No fewer than 58 per cent of Conservative voters took this position.

It’s time we quit deluding ourselves. Serious inequality exists in Canada, but it’s not inevitable. If we want more equality and the strong universal social programs that help make it possible, we need to begin a serious debate about why we’re falling behind so many other OECD countries. We need also to understand that, among other changes in government policy, tax reform is a key part of the solution.